On Monday, New York authorities gave the crypto industry another warning, this time about how to keep their clients’ digital assets safe.
When it comes to handling digital assets on behalf of customers, the New York Department of Financial Services (NYDFS) has sent a public letter to the sector explaining the need to keep client funds separate, the role that custodians should play, and the need to stay up to date with disclosures. The letter was sent because the sector had asked for it.
Companies with a BitLicense, a special operating permit that the state of New York started giving to companies that work with digital assets in 2015, must follow the new rules.
This warning comes as federal prosecutors in New York continue to look into what happened to FTX when its former CEO, Sam Bankman-Fried, was in charge. Bankman-Fried is suspected of using billions of dollars in client money to fund trades at his now-defunct hedge fund, Alameda Research.
Custodians of financial assets, like BNY Mellon, the oldest bank in the United States, are essential to the financial sector because they keep their clients’ money and stocks safe. The new rules give a more detailed explanation of how to handle digital assets.
The regulator suggested that custodians keep their clients’ digital assets separate from their own, both on the blockchain and in the custodian’s own books.
It also said that the custodian would only keep the client’s digital assets to keep them safe and that when the assets were given to the custodian, the custodian “will not thereby establish a debtor-creditor relationship with the customer.”
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